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Reports may include research findings on a specific topic that is limited in scope; present discus- sions of the methodology employed in research; provide literature reviews, survey instruments, modeling exercises, guidelines for practitioners and research profes- sionals, and supporting documentation; or deliver preliminary findings. All RAND reports undergo rigorous peer review to ensure that they meet high standards for re- search quality and objectivity. Economically Targeted Terrorism A Review of the Literature and a Framework for Considering Defensive Approaches Brian A. Jackson, Lloyd Dixon, Victoria A. Greenfield The research described in this report was conducted within the RAND Center for Terrorism Risk Management Policy (CTRMP). The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R® is a registered trademark. © Copyright 2007 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2007 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: [email protected] Preface Since September 11, 2001, a great deal of attention has been focused on the economic conse- quences of terrorism. It has come not only from individuals and organizations responsible for combating terrorism who want to understand how to reduce the economic damage that ter- rorist action can cause to a nation, but from terrorists as well. Following the significant costs of the September 11 attacks, economic targeting—the desire to intentionally create economic damages significant enough to hurt or influence a targeted nation—took a more prominent place in the statements of Osama bin Laden and like-minded terrorists targeting the United States. This document examines the economic consequences of terrorism. It focuses on under- standing the elements that might shape terrorist decisionmaking if inflicting economic dam- ages is a primary goal, as well as on laying out the range of defensive approaches that might be taken to protect nations from economic targeting. The report should be of interest to federal and state policymakers, insurers, commercial organizations, and others who have a stake in ensuring the economic security of the United States in the face of the terrorist threat. The research reported here was supported by the RAND Center for Terrorism Risk Man- agement Policy (CTRMP) as part of its larger research program focused on terrorism risk, insurance, and other related economic issues. The RAND Center for Terrorism Risk Management Policy (CTRMP) CTRMP provides research that is needed to inform public and private decisionmakers on eco- nomic security in the face of the threat of terrorism. Terrorism risk insurance studies provide the backbone of data and analysis to inform appropriate choices with respect to government involvement in the market for terrorism insurance. Research on the economics of various liability decisions informs the policy decisions of the U.S. Congress and the opinions of state and federal judges. Studies of compensation help Congress to ensure that appropriate compen- sation is made to the victims of terrorist attacks. Research on security helps to protect critical infrastructure and to improve collective security in rational and cost-effective ways. iii iv Economically Targeted Terrorism CTRMP is housed at the RAND Corporation, an international nonprofit research orga- nization with a reputation for rigorous and objective analysis and the world’s leading provider of research on terrorism. The center combines three organizations: • RAND Institute for Civil Justice, which brings a 25-year history of empirical research on liability and compensation • RAND Infrastructure, Safety, and Environment, which conducts research on homeland security and public safety • Risk Management Solutions, the world’s leading provider of models and services for catastrophe risk management. For additional information about the Center for Terrorism Risk Management Policy, contact Robert Reville Michael Wermuth RAND Corporation RAND Corporation 1776 Main Street 1200 South Hayes Street P.O. Box 2138 Arlington, VA 22202 Santa Monica, CA 90407 [email protected] [email protected] 703-413-1100, x5414 310-393-0411, x6786 A profile of the CTRMP, abstracts of its publications, and ordering information can be found at http://www.rand.org/multi/ctrmp/. Center for Terrorism Risk Management Policy Advisory Board Jeffrey DeBoer (Co-Chair) Kathleen Nelson President and Chief Executive Officer Immediate Past Chair Real Estate Roundtable International Council of Shopping Centers (ICSC) Pierre L. Ozendo (Co-Chair) Art Raschbaum Member of the Executive Board, Executive Vice President and Managing Director Head of Americas Property and Casualty GMAC RE Swiss Re America Holding Corporation Jack Armstrong Kevin Scroggin Assistant Vice President and General Director, Senior Regulatory Counsel Corporate Risk Management and Insurance Liberty Mutual Insurance Company General Motors Brian Boyden Hemant Shah Executive Vice President President and Chief Executive Officer State Farm Insurance Risk Management Solutions, Inc. Andrew Coburn Cosette Simon Vice President of Catastrophe Research and Senior Vice President Director of Terrorism Research Swiss Re Life and Health America, Inc. Risk Management Solutions, Inc. Kenneth Feinberg Richard Thomas Managing Partner Senior Vice President and The Feinberg Group, LLP Chief Underwriting Officer American International Group Ken Jenkins Steven Wechsler Chief Underwriting Officer President and Chief Executive Officer American Reinsurance RiskPartners National Association of Real Estate Investment Trusts (NAREIT) Peter Lowy Chief Executive Officer Westfield Corporation, Inc. v Contents Preface ........................................................................................................... iii Center for Terrorism Risk Management Policy Advisory Board ...................................... v Figures ........................................................................................................... ix Tables ............................................................................................................ xi Summary .......................................................................................................xiii Acknowledgments ............................................................................................ xix Abbreviations .................................................................................................. xxi CHAPTER ONE Introduction ..................................................................................................... 1 Defining Economic Targeting as an Element of Terrorist Operations .................................... 2 Two Types of Economic Targeting: Episodic Terrorism Versus Terrorist Campaigns................... 3 About This Report ............................................................................................... 4 CHAPTER TWO The 9/11 Attacks: The Economic Costs of High-Impact Terrorism ................................... 7 The Economic Effects of the September 11, 2001, Attacks ................................................. 7 Discussion........................................................................................................10 CHAPTER THREE PIRA in Northern Ireland: Adding Up the Costs of a Long-Term Conflict ........................13 The Economic Effects of the PIRA Terrorist Campaign ...................................................14 PIRA Operations in Northern Ireland .....................................................................14